Tài liệu The Digital Handshake: Connecting Internet Backbones pptx

The Digital Handshake: Connecting Internet Backbones

Michael Kende*

Director of Internet Policy Analysis

Office of Plans and Policy

[email protected]

Office of Plans and Policy

Federal Communications Commission

Washington DC 20554

September 2000

OPP Working Paper No. 32

The FCC Office of Plans and Policy's Working Paper Series presents staff analysis and

research in various states. These papers are intended to stimulate discussion and critical

comment within the FCC, as well as outside the agency, on issues in communications policy.

Titles may include preliminary work and progress reports, as well as completed research. The

analyses and conclusions in the Working Paper Series are those of the authors and do not

necessarily reflect the view of other members of the Office of Plans and Policy, other

Commission Staff, or any Commissioner. Given the preliminary character of some titles, it is

advisable to check with authors before quoting or referencing these working papers in other

publications.

* An earlier version of this paper was presented at the 27th annual Telecommunications Policy Research

Conference in Alexandria, VA on September 27, 1999, and I am indebted to Jason Oxman, of Covad

Communications, for his contribution to that version prior to leaving the Commission. I would also like to thank

Robert Pepper, Thomas Krattenmaker, Dale Hatfield, Stagg Newman, David Farber, Doug Sicker, Gerald

Faulhaber, Howard Shelanski, Donald Stockdale, Robert Cannon, Rebecca Arbogast, Jackie Ruff, Helen Domenici,

Dorothy Attwood, Michelle Carey, Johanna Mikes, Jennifer Fabian, John Berresford, and Christopher Libertelli for

their comments and thoughts on this paper. The views expressed in this paper are those of the author, and do not

necessarily represent the views of the Federal Communications Commission, the Chairman, any Commissioners, or

other staff.

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The Digital Handshake: Connecting Internet Backbones

Table of Contents

Executive Summary....................................................................................................................1

I. Introduction.........................................................................................................................2

II. Background.........................................................................................................................2

A. Introduction.....................................................................................................................2

B. Network Externalities......................................................................................................3

C. Peering and Transit..........................................................................................................4

D. The Backbone as an Unregulated Service ........................................................................9

E. Growth of the Internet Industry .....................................................................................13

III. Interconnection Issues.......................................................................................................15

A. Internet Backbone Market Power Issues........................................................................16

B. Internet Balkanization Issues.........................................................................................26

IV. International Interconnection Issues...................................................................................32

A. Principles of International Telecommunications Regulation...........................................32

B. International Cost-Sharing Issue ....................................................................................33

C. Marketplace Solutions...................................................................................................38

V. Conclusion........................................................................................................................39

Table of Figures

Figure 1: Peering.......................................................................................................................40

Figure 2: Network Access Point................................................................................................40

Figure 3: Private Peering...........................................................................................................41

Figure 4: Transit .......................................................................................................................41

Figure 5: Hot-Potato Routing ....................................................................................................42

Figure 6: Example of Free Riding .............................................................................................43

Figure 7: Number of National Internet Backbone Providers ......................................................44

Figure 8: Number of Internet Service Providers ........................................................................44

Figure 9: Number of Devices Accessing the World Wide Web..................................................45

Figure 10: Number of World Wide Web pages..........................................................................45

Figure 11: Fiber System Route Miles........................................................................................46

Figure 12: Number of Users Online Worldwide ........................................................................46

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The Digital Handshake: Connecting Internet Backbones

Executive Summary

This paper examines the interconnection arrangements that enable Internet users to

communicate with one another from computers that are next door or on the other side of the

globe. The Internet is a network of networks, owned and operated by different companies,

including Internet backbone providers. In order to provide end users with universal connectivity,

Internet backbones must interconnect with one another to exchange traffic destined for each

other’s end users. Internet backbone providers are not governed by any industry-specific

interconnection regulations, unlike other providers of network services; instead, each backbone

provider bases its decisions on whether, how, and where to interconnect by weighing the benefits

and costs of each interconnection. Interconnection agreements between Internet backbone

providers are reached through commercial negotiations in a “handshake” environment. Internet

backbones interconnect under two different arrangements: peering or transit. In a peering

arrangement, backbones agree to exchange traffic with each other at no cost. The backbones

only exchange traffic that is destined for each other’s end users, not the end users of a third party.

In a transit arrangement, on the other hand, one backbone pays another backbone for

interconnection. In exchange for this payment, the transit supplier provides a connection to all

end users on the Internet.

The interconnection policies that have evolved in place of industry-specific regulations

are examined here, in order to determine the impact of these policies on the markets for Internet

services. In the past several years, a number of parties in the United States and abroad have

questioned whether larger backbone providers are able to gain or exploit market power through

the terms of interconnection that they offer to smaller existing and new backbone providers. In

the future, backbones may attempt to differentiate themselves by offering certain new services

only to their own customers. As a result, the concern is that the Internet may “balkanize,” with

competing backbones not interconnecting to provide all services. This paper demonstrates how,

in the absence of a dominant backbone, market forces encourage interconnection between

backbones and thereby protect consumers from any anti-competitive behavior on the part of

backbone providers. While it is likely that market forces, in combination with antitrust and

competition policy, can guarantee that no dominant backbone emerges, if a dominant backbone

provider should emerge through unforeseen circumstance, regulation may be necessary, as it has

been in other network industries such as telephony.

The paper also examines an international interconnection issue. In recent years, some

carriers, particularly those from the Asia-Pacific region, have claimed that it is unfair that they

must pay for the whole cost of the transmission capacity between international points and the

United States that is used to carry Internet traffic between these regions. After analyzing the case

presented by these carriers, the paper concludes that the solution proposed by these carriers,

legacy international telecommunications regulations, should not be imposed on the Internet. To

date, there is no evidence that the interconnection agreements between international carriers

result from anti-competitive actions on the part of any backbones; therefore, the market for

Internet backbone services is best governed by commercial interactions between private

participants.

2

I. Introduction

The Internet is not a monolithic, uniform network; rather, it is a network of networks,

owned and operated by different companies, including Internet backbone providers. Internet

backbones deliver data traffic to and from their customers; often this traffic comes from, or

travels to, customers of another backbone. Currently, there are no domestic or international

industry-specific regulations that govern how Internet backbone providers interconnect to

exchange traffic, unlike other network services, such as long distance voice services, for which

interconnection is regulated.1

Rather, Internet backbone providers adopt and pursue their own

interconnection policies, governed only by ordinary laws of contract and property, overseen by

antitrust rules. This paper examines the interconnection policies between Internet backbone

providers that have evolved in place of industry-specific regulations, in order to examine the

impact of these policies on the markets for Internet services.

The paper first examines the current system of interconnection, and then examines

several recent developments. In the past few years, a number of parties in the United States and

abroad have questioned whether larger backbone providers are able to gain or exploit market

power through the terms of interconnection that they offer to smaller existing and new backbone

providers. In addition, backbones may attempt in the future to differentiate themselves from

their competitors by not interconnecting at all to exchange traffic flowing from innovative new

services. The paper shows how competition, governed by antitrust laws and competition

enforcement that can prevent the emergence of a dominant firm, can act to restrain the actions of

larger backbones in place of any industry-specific regulations, such as interconnection

obligations.

Section two of this paper examines the history of Internet interconnection and describes

current interconnection policies between Internet backbones. The paper next examines several

current and potential pressures on the domestic system of interconnection in section three, while

section four examines international interconnection issues. The conclusion is in section five.

II. Background

A. Introduction

This paper examines the interconnection arrangements that enable each Internet user to

communicate with every other Internet user.2

For simplicity, the paper focuses on the

interactions between four groups of Internet participants: end users, content providers, Internet

service providers (ISPs), and Internet backbone providers (backbones). End users communicate

1

For purposes of this paper, industry-specific regulations are defined to be rules, applied by an expert

agency, that govern the behavior of companies in a particular industry. These regulations supplement the antitrust

laws and ordinary common law rules that apply to all industries in the United States. In general, industry-specific

regulations correct for market failures that antitrust laws and ordinary common laws cannot resolve or prevent. In

this paper, an “unregulated” industry is one that is not subject to any industry-specific regulations.

2

For further discussion of the structure of the Internet, see Kevin Werbach, “Digital Tornado: the Internet

and Telecommunications Policy” (OPP Working Paper Series No. 29, 1997)(Digital Tornado) at 10-12. See also

Jean-Jacques Laffont and Jean Tirole, Competition in Telecommunications (MIT Press, 2000) at 268-272; J. Scott

Marcus, Designing Wide Area Networks and Internetworks: A Practical Guide, (Addison Wesley Longman,

1999)(Designing Wide Area Networks) at 274-289.